Office of the Attorney General
State of Texas

Re: Authority of a county to invest in obligations issued by
the United States

Dear Representative Donaldson:

You ask whether county governments and subdivisions thereof may
withdraw funds from county depository banks and invest them in
debt instruments of the federal government. Articles 2544
through 2558a, V.T.C.S., provide for the selection and
utilization of a county depository. Article 2549, V.T.C.S.,
provides that the county treasurer shall transfer to the
depository all funds belonging to the county and to any district
or other municipal subdivision thereof not selecting its own
depository. The tax collector is to deposit all taxes collected
by him in the depository, and all money held by any district,
county or precinct officer in the county is to be governed by
this law. See Attorney General Opinion H-1185 (1978).

There are certain specific statutes which permit county funds
to be placed in debt instruments of the federal government. The
county may invest sinking funds accumulated for the redemption
and payment of its outstanding bonds in federal government
securities. V.T.C.S. arts. 779, 836. However, the proceeds from
the sale of the bonds may not be so invested. See Attorney
General Opinion V-1182 (1951). Article 708b and 708b-1,
V.T.C.S., permitted the proceeds of bonds issued and sold prior
to their passage to be invested in federal securities provided
the political subdivision was unable to obtain labor and
materials to carry out the purpose for which the bonds were
issued. See Attorney General Opinions O-7393, O-7267 (1946).
These statutes have no present application. Finally, article
1269j-3, V.T.C.S., provides as follows:

All political subdivisions of the State of Texas which have
balances remaining in their accounts at the end of any fiscal
year may invest such balances in Defense Bonds or other
obligations of the United States of America; provided, however,
that when such funds are needed the obligations of the United
States in which such balances are invested shall be sold or
redeemed and the proceeds of said obligations shall be deposited
in the accounts from which they were originally drawn.

You ask whether a county governing body has authority to
withdraw funds from the depository and invest them in United
States obligations in the absence of express statutory authority
to do so. Since article 2549, V.T.C.S., provides that all money
is to be placed in the county depository, we believe a specific
statute must provide an exception in order for the county to
place funds in federal debt instruments. Such exceptions are
provided by articles 779, 836, and 1269j-3, V.T.C.S.

It is suggested that article 4413(34c), V.T.C.S., authorizes a
county to invest its funds in United States obligations.
However, this statute applies only to funds which the political
subdivision has legal authority to invest. V.T.C.S. art.
4413(34c), s 1(1). Placing funds in a depository is not an
investment of those funds. Lawson v. Baker, 220 S.W. 260 (Tex.
Civ. App.-- Austin 1920, writ ref'd). Thus article 4413(34c)
does not authorize a county to invest funds which other statutes
require to be placed in the county depository. See Attorney
General Opinion H-1013 (1977).

You also ask whether the withdrawal of funds from a county
depository for the purpose of investing them in United States
securities other than as specifically permitted by statute would
constitute a breach of the depository contract entered into by
the county and its depository bank. The laws existing at the
time the contract is made become part of it. Langever v. Miller,
76 S.W.2d 1025 (Tex. 1934); Winder Bros. v. Sterling, 12 S.W.2d
127 (Tex. 1929). We believe the statutes requiring all county
funds, with certain specific exceptions, to be placed in the
county depository become part of the county's contract with the
depository. Thus, if the county were to withdraw funds from the
depository in order to invest them in United States securities
other than as authorized by statute, it would breach its contract
with the depository.

You next ask whether a county relinquishes any statutory right
to invest its funds in United States securities by agreeing to a
contract term that county funds are to be deposited with the
depository. In our opinion, statutes which permit the county to
invest certain funds in United States securities become part of
the contract. See Langever v. Miller, supra; Winder Bros. v.
Sterling, supra. Thus, the county does not waive any right under
these statutes by entering into a depository contract.

You next ask whether article 1269j-3, V.T.C.S., permits the
withdrawal of funds from the year-end balances of the county in
order to invest them in United States securities even though the
funds may not be surplus funds and may have been collected for
the purpose of financing county expenditures in the subsequent
fiscal year. Article 1269j-3, V.T.C.S., refers to 'balances
remaining in their accounts at the end of any fiscal year'
'Balance' has been defined to mean the excess funds in an
account. Commercial Discount Co. v. Holland, 289 P. 906 (Cal.
App. 1930); Jones v. Marrs, 263 S.W. 570 (Tex. 1924); Holmes v.
Holmes, 396 P.2d 633 (Wash. 1964). We believe this definition
applies to article 1269j-3, which refers to 'balances remaining'
in the accounts. (Emphasis added). The 'accounts' referred to
are, in our opinion, those records of account required by law to
be kept by public officials for each separate fund as evidence of
the stewardship of the fund--not bank accounts in which monies
from many such funds might be collected. See V.T.C.S. arts.
1607, 1608, 1609.

In our opinion, article 1269j-3, V.T.C.S., permits the
investment of only the monies remaining as surplus in the
separate accounts for the preceding fiscal year. Only such
unexpended year-end balances may be invested under it. Monies
collected to finance public expenditures in the subsequent fiscal
year are attributable to accounts for the new year, not the old
one, and may not be withdrawn pursuant to article 1269j-3,
V.T.C.S., until the conclusion of the new fiscal year, when any
balances therein remaining would then become subject to it.
Attorney General Opinion O-5278 (1943). See Attorney General
Opinions M-75 (1967); V-1182 (1951).

We need not answer your final question, which depends on a
conclusion that funds described in your previous question may be
withdrawn at the end of the fiscal year.

Mr. Resweber has submitted the Harris County Depository Pledge
Contract and asks whether Harris County may invest its funds in
United States obligations under its terms and provisions. Harris
County may invest its funds in United States obligations as
permitted by the statutes discussed in answer to Representative
Donaldson's questions. Since those provisions are incorporated
into the contract, investment of the funds in accordance with
them will not constitute a breach of contract.

SUMMARY

County governments may withdraw funds from the county
depository to invest them in United States obligations where
expressly permitted to do so by statute. The laws existing at
the time the contract is made become part of it. Thus, violation
of a statute regarding withdrawal of funds constitutes a breach
of the contract, and the county does not waive its right to
withdraw funds pursuant to statute by entering into a depository
contract. Article 1269j-3, V.T.C.S., does not authorize a county
to withdraw at the end of a fiscal year and place in federal
obligations funds which were collected for the subsequent fiscal
year.